The first court directly to address insurance coverage for COVID-19 business interruption has ruled against coverage. In ruling from the bench, the Gavrilides v. Michigan court held that COVID-19 did not constitute physical loss or damage, the requisite trigger for business interruption coverage.1 This decision is consistent with dicta from Social Life Magazine, Inc. v. Sentinel Ins. Co.2 where the court, in ruling that injunctive relief was not available to the policyholder, opined that physical loss or damage had not occurred. Policyholders have several takeaways from these decisions.

First, New Jersey law, and the law in several other jurisdictions, is different. The New Jersey appellate division’s decision in Wakefern3 found business interruption coverage where there was no physical alteration of property. In that case, the northeastern grid shut itself down to prevent any damage. The members of the policyholder, a supermarket cooperative, experienced food spoilage and business interruption. Despite the lack of a physical, tangible injury that altered property, the court found in favor of coverage. Specifically, the court held that the loss of functionality of the system constituted physical loss or damage as a matter of law. The court grounded its decision in fundamental precepts of New Jersey law regarding insurance policy construction, relying on the doctrines of ambiguity and reasonable expectations....